The New Credit Card Rules: Winners and Losers

While some consumers benefit from the new CARD Act, others are worse off than before.

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The new credit card rules limit interest rate hikes, fees, and other irritating aspects of using plastic. That’s why they’ve been hailed by consumer advocates as a wonderful development. But because lenders are recouping some of their profits through other means, including new types of fees, some people lose out under the new rules.

[In Pictures: Top 10 Cities with the Most Debt]

For example, people who save their cards for emergency use might find their cards suddenly cancelled. That’s because lenders can no longer charge inactivity fees, which can make it unprofitable to continue seldom-used accounts. On the other hand, people who find themselves unexpectedly racking up large amounts of debt due to a job lay-off or other tough circumstance might benefit from the fact that lenders can't hike up their rates without providing at least 45 days of advance warning.

Here’s a guide to whether you’ll come out ahead—or behind:

Winners:

Consumers prone to taking on too much debt.

Since lenders are now limited in how quickly—and for what reasons—they can raise interest rates, cardholders who tend to spend beyond their means will be less vulnerable to unexpected and sudden rate increases. They’ll receive written notification and have a chance to close any cards and pay off their balance at the old rate prior to any hikes.

People who stay on top of their paperwork.

Because notifications from credit card companies often arrive looking like junk mail, it’s easy to miss notifications. But if you stay on top of your mail, open anything official-looking, and take action as necessary, then you can stay ahead of any card policy changes. Consumers who take the time to look over the new easy-to-read tables included on each bill statement can also benefit from the descriptions of how long it will take to pay-off the balance if only minimum payments are made.

[For more money-saving tips, visit the U.S. News Alpha Consumer blog.]

Anyone who enjoys using online budgeting tools.

Banks are increasingly responding to consumer demand for online budgeting tools. Wells Fargo, Discover, and Chase Blueprint are among the cards that now come with useful tools to help customers manage their spending, such as spending analysis reports and goal monitoring. In the past, customers went to outside sites such as www.mint.com for such services, but now, they are built into many accounts, as banks recognize the importance of online personal finance tools. While the CARD Act didn’t cause this change directly, it helped boost overall awareness among consumers, who now demand better service from their card issuers.

Losers:

Cardholders who rarely use their cards.

If you only use your card in emergencies, then beware: Issuers are more likely to cancel cards that go unused for long periods. That’s because inactivity fees are now prohibited, so issuers might decide that it costs them too much money to maintain unused cards.

People who pay off their balances on time.

Because lenders won’t be making money on these accounts, they might add annual fees, or cut their rewards programs. Pew Charitable Trusts reports that the median annual fee for bank-issued credit cards went up by 18 percent between July 2009 and March 2010, from $50 to $59. (They ranged from $29 to $450.) Even customers who pay off their balance each month pay annual fees, so all consumers will need to be on the lookout for increases in this area, and consider switching cards if the fee goes up.

[Visit the U.S. News Personal Finance site for more insight and money management tips.]

Also, people who routinely carry large balances.

Anyone who carries a balance might be paying more each month, because overall, interest rates have gone up, especially for people with less-than-stellar credit histories. The average credit card rate on consumer cards is now almost 17 percent, according to IndexCreditCards.com, which tracks trends in the industry. That’s one and one-half points higher than a year ago. IndexCreditCards.com attributes the increase to the CARD Act as well as rising consumer default rates. It also reports that more cards have switched from fixed rates to variable rates, which means they could go up even more later. Consumers need to be watching for such increases so they can switch cards if they can get a better deal elsewhere.

Consumers with weak credit histories.

With lenders wary about taking on customers that are unable to pay their bills, people with a history of failing to make payments might have a tougher time opening up credit cards. You can still search for the best deals for you on comparison websites such as creditcards.com or cardratings.com, but expect to put more effort into your search.

Kimberly Palmer is the author of the new book Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.